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How to build credit as a teenager

Highlights: 

- Your credit score is based on how you’ve used credit in the past, with your payment history being the most important factor.

- Making on-time payments is vital, but first you’ll need some sort of credit product to start building credit history!

- Good credit can make it easier to get approved for loans and is an important part of “adulting.”

You’ve probably heard people talking about credit, credit scores, debt, and maybe even their credit report. But what does all of this mean — and why is it important?

A credit score is a measure of how responsible someone has been when it comes to repaying loans and credit cards. It’s important for many personal finance tasks, from applying for loans to securing an apartment lease.

As a teen, you may be wondering about credit-building strategies. If you can establish a good credit score at a young age, you’ll be set up for financial success!

Here’s a rundown on what you need to know about how to build credit as a teenager.

What is credit?

Teenager seriously thinking about how to build credit as a teen

Credit is the ability to borrow money and pay it off over time.

A credit score is a numerical rating of a person’s credit history — based on the info in their credit report. This score basically tells lenders how responsible a borrower has been. 

Your credit report is kinda like your full report card from school, with all the nitty-gritty details. And your credit score is a bit like your GPA — it provides a snapshot of your history, without diving into all the details.

A higher score means that the borrower is more likely to be able to repay their debts. A lower score indicates that the borrower might be more risky.

Lenders look at credit scores and credit reports to determine whether or not they want to issue you a loan or approve you for another financial product.

For example, if you apply for a credit card, the lender will check your credit. This may include looking at your credit score or accessing your credit report from one of the three credit bureaus (i.e., Experian, TransUnion, or Equifax). 

The credit bureaus keep track of all your credit history and compile your credit report. They do their thing in the background, so you don’t have to interact with them directly. 

While the credit score is a quick snapshot, your credit report will include detailed info about your credit accounts, debt, and payment history — including any dings, such as missed payments, bankruptcies, or accounts sent to collections.

If the lender likes what they see (like consistent on-time payments and low debt utilization), you’re more likely to get approved for the credit card. Plus, you’re more likely to get a more competitive interest rate, which makes borrowing money cheaper.

How are credit scores calculated?

Credit scores are calculated based on the information in your credit report. 

There are two primary credit scoring models: FICO and VantageScore. VantageScore combines information from all three credit bureaus, while FICO is based on a single credit bureau.

Both scoring systems have the same score range of 300 to 850, with 850 being a perfect score. 

Here’s how FICO Scores are calculated:

  • Payment history: This factor makes up 35% of your credit score. It measures how many payments you’ve made and whether you’ve had any late payments or missed payments.

  • Amounts owed: This factor makes up 30% of your credit score. It includes how much you owe in total and compares it to how much you could borrow based on your current credit limits.

  • Length of credit history: This factor makes up 15% of your credit score. It considers how long you’ve been using credit and the ages of your accounts.

  • New credit: This factor makes up 10% of your credit score. It’s based on how many new accounts you’ve applied for or opened recently.

  • Credit mix: This factor makes up 10% of your credit score. It looks at how many different types of credit you are using or have used (loans, credit cards, etc.).

The VantageScore 4.0 model uses the following factors and weightings:

  • Payment history: 41%

  • Depth of credit: 20%

  • Credit utilization: 20%

  • Recent credit: 11%

  • Balances: 6%

  • Available credit: 2%

As a teen, here’s the most important bit for you: The bulk of your credit score is based on your payment history. It’s very important to make on-time payments on all your credit products, like loans or credit cards. We’ll get into other good credit habits below, but payment history is the most important factor to focus on every month.

How to build credit as a teenager

Teenager with braces holding a card and a phone

Building credit as a teen can be a bit different than it is for adults. This is mostly because minors (under age 18, in most cases) can’t necessarily take out their own loans or open their own credit cards. 

You can technically open your own credit card at age 18. However, anyone that’s under 21 may have to jump through some extra hoops 🏀 to prove they have enough independent income. 

Although you’ll have more options when you turn 18, it definitely doesn’t hurt to start earlier than that! Here’s how to start building up your credit file as a teen.

How to build credit at 17 (or younger)

The main way to build credit is to take out a loan or open a credit card and make consistent on-time payments in full by the due date each month.

Unfortunately, you can’t open a credit card until you turn 18, nor can you take out a loan.

Fortunately, there’s another way: You may be able to be added as an “authorized user” on your parent’s credit card or another family member’s account.

An authorized user is someone that shares access to the credit account. If added, you would have your own card that’s linked to your parent’s account, and you can use it or simply let your parents hold onto it.

This approach helps because you can share your parents’ credit history. The account (the credit card) starts showing up on your own credit report, and the payment history and other details can start contributing to your own credit score.

So, it’s basically like “piggybacking” on your parents’ credit 💳 

Most credit card companies allow authorized users as young as 13. (Discover has a minimum age of 15.) Keep in mind that it’s not guaranteed that an authorized user card will be reported to your credit file. For instance, American Express allows users as young as 13, but it does not actually report credit history until you turn 18.

You can’t open your own credit card or take out a loan until you turn 18. The only exception is with student loans, which have no minimum age requirement. However, student loans require that you be enrolled in a qualifying degree program. Also, keep in mind that student loans won’t do much to benefit your credit until you start making payments, which often aren’t required until after you graduate college.

Greenlight tip: A popular way to build credit if you’re under 18 is to ask your parents to add you as an authorized user on their account. You don’t even necessarily need to use the card. You just need to be added so that your name is associated with the credit card for credit reporting purposes.

How to build credit at 18

Once you turn 18, you’ll have more options to start building credit. This is when you can open your first credit card, take out loans, sign leases, and do various other adulting activities! Here are some options to help get started.

Open your first credit card

How to build credit as a teen: young man happily opening an account online

If you have some income from a job or side hustle, you can likely apply for a credit card. It might be tricky to get approved, at first, so many teens opt for what is known as a “secured credit card”.

A secured credit card requires a security deposit. For example, you could open a secured card, deposit $300 into a locked account  🔐, and then get the card with a $300 credit limit. 

You could then use the card as normal and make monthly payments like you would with a standard credit card. You can eventually get the deposit back when you close the card or when the card issuer agrees to convert the card to a standard unsecured credit card.

If you have to make a deposit, what’s the point? Isn’t that more like a debit card? 🤔

That’s a good question!

The benefit is that from a credit reporting perspective, secured cards are the exact same as standard credit cards. When you make on-time payments, the card issuer will report those payments to the credit bureaus, which helps you build credit.

Take out a loan

Once you’re 18, you can apply for loans. Again, you’ll need income (and/or a co-signer) to qualify. Credit builder loans may be a good place to start.

Credit builder loans are often a better option for newcomers to the world of credit. They are somewhat similar to secured credit cards because they are specifically designed to help you build credit. They are offered by most credit unions and many banks.

You can think of a credit builder loan like a forced savings account that also helps you build credit. Here’s how it works.

You open the loan and the lender sets aside an amount of money (often $300 to $1,000) in an account for you. But you can’t access the money yet! ❌

Then, you make monthly payments toward the loan, until it’s paid off. Once it is, you can access the full lump sum of the loan and use it however you see fit. ☑️

The benefit here is that each payment you make toward the loan will be reported to the credit bureaus, which helps you build credit.

An alternative may be a personal loan. However, it can be tough to get approved for a personal loan without good credit and income — and the interest rates and fees may be high.

What else should I know about building credit as a teen?

We’ve covered the basics, but there is more to learn! For a fun way to brush up on all sorts of financial literacy topics, check out Level Up, the money skills game from Greenlight! And for now, here are some credit-specific tips.

You’ll need income to start building credit.

Teenager happily working at a supermarket

To open a credit card or take out a loan, you need to have income to show the lender. Even once you’ve turned 18, the CARD Act of 2009 requires that young adults show proof that they can pay their bills before applying for a credit card.

Now is a great time to start making money as a teen! Here are some ideas:

You’ll want to have a bank account set up first 🏦

Before worrying too much about credit, you should cover your financial bases by opening a checking account and a savings account. This will allow you to receive direct deposits from your work, pay bills, manage your money, and more.

Greenlight is a debit card and banking* app for teens that has powerful features for saving, spending, investing, and more.

You should monitor your credit score 📈

It’s a good idea to keep an eye on your credit score. You can access free credit scores through services like Credit Sesame or Credit Karma. Many card issuers also offer credit score monitoring (once you have a credit card with them).

You can also get a free credit report once per year from each bureau at AnnualCreditReport.com.

It takes a while to build credit 🗓️

It can take 3-6 months to get your first credit score once you’ve opened an account — and even longer to build a good credit score.

While some patience is required, this is just another reason to get started early. In the meantime, there’s lots to learn about credit! The websites of major credit bureaus like Experian, Equifax, and TransUnion are good places to learn more.

Start building credit as a teen 

For best results, you should try to establish your credit history as soon as possible. If you’re under 18, the main path forward is becoming an authorized user on a family member’s account. If you’re 18 or older, other options include a secured credit card or a credit builder loan.

If you’re already thinking about building credit at your age, you’re on the right path! Why not continue your money skills journey with Greenlight? Greenlight is a money app for teens, with powerful features for spending, saving, and investing.

Try it for one month, on us.

*Greenlight is a financial technology company, not a bank. The Greenlight app facilitates banking services through Community Federal Savings Bank (CFSB), Member FDIC.

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